jpy fundamentals

Japanese Yen: Bank of Japan May Cut Rates Overnight, Risks of Verbal and Physical Intervention

Thursday, 18 December 2008 23:39:45 GMT  |  Terri Belkas, Currency Strategist

The Bank of Japan is widely expected to announce that they are leaving rates unchanged at 0.30 percent tonight. While there is no official time of release, we typically see the news hit the wires between 22:30 ET and 00:30 ET. There is potential for this to be very market-moving, not only because Credit Suisse overnight index swaps are pricing in a 56 percent chance of a 25bp cut, but also because of intervention risks. Indeed, given the rally in the Japanese yen over the past few months, Japanese exporters have felt the brunt of the impact, and the government has become increasingly concerned. In fact, they’ve started to use verbal intervention, as Finance Minister Shoichi Nakagawa said last night that he has “the means” to temper the appreciation of the yen. Japan has a long history of successfully intervening in the markets, as they hold the second largest amount of foreign currency reserves in the world (China holds the most). As a result, it will be important to watch for comments by the Bank of Japan pointing toward intervention, or perhaps even a physical one, in the near-term. Traders shouldn’t necessarily take this as a sign that they should sell yen, but should certainly beware of the potential for choppy price action if they are already holding positions.

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars